My second adult job was in credit card collections at what was then Citibank, and I remember several family members asking why I ever would work in collections rather than in a marketing or sales-type job. The position was very cool for a 22-year-old buck from Bronxville, NY. I had to go out to collection agencies across the country and reverse engineer why they could collect money when Citibank failed. Plenty of flipping through ledger cards and watching people, but this was probably one of my most significant learning experiences. And, an expense account and travel across the country for a single guy proved to be fun. In response to collection skeptics, I thought working for Citi would prove to be a formidable job, and it was.
Then over time, I got to work forward into other functions, but I found an excellent place to start was with credit failures rather than successes.
The opposite is happening today at American Express, according to Bloomberg this morning, in an article titled “AmEx Shifts Hundreds of Salespeople to Collections Work.” In the quarterly investor update, CEO Steve Squeri announced that American Express was increasing loan loss reserves by almost $2 billion. American Express’ leader also discussed the staff redeployment by saying that credit and collections were similar because they were a “little bit like selling.”
There is plenty of wisdom in Squeri’s comments. Redeployed staff, which will come out of marketing and sales roles, will return (hopefully soon) with an enriched view of the credit card industry. They will learn that not everyone pays despite their optimistic views. And, as you can see in today’s economic client, few people that fail in their credit responsibilities are “bad.” Life happens, and though no one ever expected it, a global pandemics can upset the entire credit industry.
In risk management, automated systems, trained by expert human eyes, can reliably predict who can pay, who won’t pay, and who simply cannot pay. The human intervention involved in speaking to customers also helps sort it out.
Mercator’s early view on the credit risk impact of COVID-19 continues to hold true. Phase 1 was the decrease in transactions. Phase 2, where we are today, is the build-up to massive credit losses, which is what top credit card issuing banks are bracing for. Phase 3 is the recovery, which will come at an uncertain date. Yet no one knows when the new normal will begin.
And while payment deferrals offer many consumers with an option to postpone, but not forgive ensuing payments, many programs will begin expiring in August, which will send a second wave of credit write-offs in the already unsteady payments industry.
With that, we might find that American Express’ strategy to backfill collection units with marketing staff will become an industry standard. The entire credit cycle will benefit from cross-training that will broaden the perspective of the operational team. American Express’ public view of the staffing shift is a positive reaction to a global issue. Consumers will likely benefit also.
Overview provided by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.
